Long-term investing can be made much easier by insisting on investing in only companies with proven track records. This investing philosophy helps investors to avoid having to sell subpar holdings at a loss because it helps weed out below-average quality companies.
With a $67 billion market capitalization, TJX Companies (TJX -0.51%) is the largest off-price retailer in the world. And it looks like the stock would make a strong addition to the portfolio of income investors. Here are three reasons why.
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1. The company just had a tremendous first quarter
TJX reported excellent earnings results in the first quarter ended April 30. The company -- known for its T.J. Maxx, Marshalls, and HomeGoods stores -- recorded $11.4 billion in net sales during the quarter. This equates to a 13.1% growth rate over the year-ago period.
What were the factors behind this respectable sales growth? The company's net sales in the U.S. edged 1.4% higher year over year to $8.9 billion in the first quarter. TJX's comparable-store sales were flat in the first quarter. This is impressive considering that it faced a difficult comparison period in the prior year from the $1.9 trillion American Rescue Plan Act economic stimulus. The company's U.S. total store count inched 1% higher over the year-ago period to 3,398. This was the other piece of the puzzle that explained TJX's net sales growth during the quarter.
Internationally, TJX had a low bar to clear in the first quarter. This is because most of the company's stores in Canada, Europe, and Australia were closed temporarily to comply with government-mandated shopping restrictions aimed at slowing the spread of COVID-19 in the year-ago period. This is how TJX's international net sales soared 91.5% higher year over year to $2.5 billion during the quarter.
The company posted $0.68 in non-GAAP (adjusted) diluted earnings per share in the first quarter. This is equivalent to a 54.5% growth rate over the year-ago period. Aside from TJX's higher net sales base, this was the result of two variables. First, the company's non-GAAP net margin surged 180 basis points higher year over year to 7.1% during the quarter. Second, share buybacks pushed TJX's weighted-average diluted outstanding share count 2.6% lower to 1.2 billion in the first quarter.
2. High dividend growth can continue
TJX boosted its quarterly dividend per share by 13.5% in March. And it's my belief that more dividend hikes will come in the years ahead. This is because, for one, analysts anticipate that TJX will deliver 12.8% annual earnings growth through the next five years. And the stock's dividend payout ratio is expected to be 35.9% for its current fiscal year. This should give TJX the ability to raise its dividend in line with earnings over the medium term.
Low-teens annual dividend growth is an attractive proposition. And if that weren't enough for investors, the stock's 2.1% dividend yield is moderately higher than the S&P 500 index's 1.6% yield.
3. A wonderful business at a fair price
TJX is a company with steady fundamentals that pays a market-topping dividend to its shareholders. And to top it all off, the stock seems like it's reasonably valued. This is supported its forward price-to-earnings ratio of 18, which is just below the apparel retail industry average of 18.2.
A stock of TJX Companies' quality arguably deserves to be trading at a slight premium to its peers, not at a discount. That's what makes the stock an underrated retail winner for investors to think about buying.
